Question

Calculate aggregate demand (AD), aggregate supply (AS) for all levels and the equilibrium level of income from the given schedule, it the Investment is fixed at 20 crores:

Income	0	10	20	30	40	50	60	70	80	90	100
Consumption	20	25	30	35	40	45	50	55	60	65	70

(AD: 40, 45, 50, 55, 60, 65, 70, 75, 80, 85 90; AS: 0, 10, 20 30. 40, 50, 60, 70, 80, 90 100; Equilibrium level of Income: Rs. 80 Crores)

Answer 1

Aggregate supply refers to the desired level of output in the economy during an accounting year. It is through this output only that the producer sector generates income. Therefore, aggregate supply= consumption + savings.

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

Income	0	10	20	30	40	50	60	70	80	90	100
Consumption	20	25	30	35	40	45	50	55	60	65	70
Investment	20	20	20	20	20	20	20	20	20	20	20
Aggregate Supply	0	10	20	30	40	50	60	70	80	90	100
Aggregate Demand	40	45	50	55	60	65	70	75	80	85	90

At equilibrium level of output, AD=AS which is at Rs. 80 crores of income.